Moving from Family HDHP/HSA, to individual HDHP/HSA and individual FSA?

Question

A similar question was asked here, but in this case they were looking to move to a family plan.

Wife has FSA with employer, and my new employer offers an HSA plan. What to do?

My situation is my spouse and I are currently on a HDHP/HSA through my employer, because at the time she was unemployed. We maxed our HSA family contributions for the year and are making monthly payments from the HSA for both our health expenses. For January 1 we plan on moving to individual accounts.

My wife now has a new job and the employer offers a low-deductible plan with FSA option.

My questions are:

1. Can I continue with my individual HDHP from my employer and change my family HSA contribution to an individual; and at the same time can my wife do the individual FSA? Would this avoid a conflict?
2. If my wife does change plans, are we allowed to continue to pay for her prior expenses from the HSA? How about future expenses; can any remaining funds from "her half" be used - this would seem to be a case since I would no longer contribute to a family; or can the funds only be used for my expenses moving forward?
3. If it's the case I cannot contribute at all to an HSA if she uses an FSA, then if she does not fund the FSA, can I continue to fund the HSA as an individual?

It would be great if there was an article that clearly talked about these split household scenarios. In your responses, please number them similar to my list so it is clear what it is answering, since I find all of this confusing.

Answer 1

Answers to your questions:

1. Can I continue with my individual HDHP from my employer and change my family HSA contribution to an individual; and at the same time can my wife do the individual FSA? Would this avoid a conflict?

Unfortunately, FSAs automatically cover the medical expenses of a spouse. This means that if your wife has an FSA, you are covered by it, which will affect your HSA-eligibility. A standard medical FSA will make you ineligible to contribute any new money to an HSA. There are a couple of kinds of special HSA-compatible FSAs that you can be covered by and still remain HSA-eligible (limited-purpose FSAs and post-deductible FSAs), but most FSAs are not like that.

To directly answer your questions, you may continue with your HDHP and your wife can have an individual health plan with an FSA, but you will not be eligible to contribute any new money to your HSA at any level while you are covered by your wife's FSA. I don't think there is any way for you to opt out of your wife's FSA, but your wife could opt out of the FSA completely, which would preserve your HSA eligibility at an individual contribution level.

2. If my wife does change plans, are we allowed to continue to pay for her prior expenses from the HSA? How about future expenses; can any remaining funds from "her half" be used - this would seem to be a case since I would no longer contribute to a family; or can the funds only be used for my expenses moving forward?

No matter what you choose to do next year, the money that is already in your HSA account is yours to keep, and you can spend it on any medical expense for you, your wife, or your dependent children at any time.

3. If it's the case I cannot contribute at all to an HSA if she uses an FSA, then if she does not fund the FSA, can I continue to fund the HSA as an individual?

She would need to opt out of the FSA completely, so that neither of you are covered by the FSA. In that case, you would be an HSA-eligible individual, and you and your employer could contribute to your HSA at an individual level.